This paper presents a dynamic principal-agent analysis of incentive systems for Salmonella control. The European Union will require Salmonella testing from 2008. On the basis of the producer's performance history in controlling Salmonella, the incentive systems analysed determine quality premiums to the producer, testing frequencies for hogs delivered, as well as charges to the producer for testing and penalties. Using cost estimates and technical parameters, we evaluate two dynamic incentive systems. We also assess the impact of ownership structure on performance. The more efficient incentive system economises on testing costs by reducing the probability of testing in response to a favourable production history and is preferred under all ownership structures.
- moral hazard